What is a reaffirmation agreement, and how does it work?

A reaffirmation agreement is an agreement by a debtor and a creditor about how to treat a particular debt that would otherwise be discharged in the debtor’s bankruptcy. Usually, the debt is secured by collateral that the creditor could repossess or foreclose on. In the reaffirmation agreement, the debtor agrees to pay some or all of debt, usually, according to schedule. In exchange, the creditor agrees not to repossess or foreclose on collateral that secures the debt, as long as the debtor makes the agreed-upon payments. A valid reaffirmation agreement puts the debtor under a legal obligation to pay back the entire amount agreed upon, even if this is more than the value of the collateral that the debtor is keeping. So if the debtor defaults in the payments required under the reaffirmation agreement, the creditor can repossess or foreclose, and then seek a personal judgment against the debtor if the sale of the collateral does not satisfy the debt.

However, in order for a reaffirmation agreement to be valid, several requirements must be met, including the following: (1) the agreement has to be entered into before the debtor receives a discharge; (2) the agreement has to be filed with the court, the bankruptcy court has to make a finding that the reaffirmation agreement is done knowingly and does not create a serious problem for the debtor. The agreement must be voluntary; no one can force either the debtor or a creditor to enter into a reaffirmation. Finally, debtors are given the right to change their minds: a debtor may cancel any reaffirmation agreement within 60 days after the agreement is filed with the court, or any time before discharge, whichever is later.

If any of the requirements for a reaffirmation have not been complied with, the agreement may not be binding. In that event, the debtor would have no personal obligation to make payments under the agreement.